Nifty futures scrapped, SGX seeks Shenzhen-type linkage with GIFT

Bloomberg|

Updated: Feb 15, 2018, 08.22 AM IST

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SGX’s shares fell more than 7 per cent on Monday as investors reacted to the announcement.

By Santanu Chakraborty and Andrea Tan

Singapore’s exchange may have a shot at keeping its lucrative India index futures, as long as it can meet the desire of Prime Minister Narendra Modi’s government to keep investor activity within the country’s borders.

The bourse is discussing a trading link with the National Stock Exchange of India Ltd. that would make Singapore a gateway to the NSE’s derivatives market in Gujarat, Modi’s home state, said NSE Chief Executive Officer Vikram Limaye. An agreement would allow Singapore Exchange Ltd. to replace some of the business it’s set to lose after NSE canceled a licensing deal that allowed derivatives linked to the Nifty 50 Index to trade in the city-state.

“We had discussions earlier about a derivatives connect,” Limaye said in an interview on Wednesday. “That is a process that will resume and we will see how the discussion evolves. There is no reason why we cannot consider the proposal.”

Indian exchanges said on Feb. 9 that they were scrapping all overseas licensing deals and data feeds to foreign venues, the latest attempt to discourage offshore trading and promote the Gujarat International Finance Tec-City. The tax-free business hub created by Modi, a former chief minister of Gujarat, was designed to rival international financial centers.

SGX’s shares fell more than 7 per cent on Monday as investors reacted to the announcement, which could mean a cut of at least 4 per cent to SGX’s total revenue, according to Sharnie Wong, a Bloomberg Intelligence senior industry analyst.

Greater UrgencyA trading link between Singapore and Gujarat would broadly resemble the connection between Hong Kong and exchanges in Shanghai and Shenzhen, which provides access to China via the former British colony. The system means investors operate within the mainland’s capital controls and ensures all trading is on Chinese venues.

While talks have previously taken place, NSE’s Feb. 9 action created greater urgency for SGX officials to consider some sort of tie-up in India, according to people familiar with the matter. The link, in which buy and sell orders from SGX’s customers would be routed to NSE’s IFSC Ltd. exchange, would be tax-free and offer contracts in dollars, said Limaye.

An SGX representative declined to comment. In a statement on Sunday, the exchange said it would work with NSE “toward solutions for global investors, including developing solutions from NSE’s IFSC.”

The decision to scrap India’s overseas licensing deals came days after the Singapore exchange launched Indian single-stock futures despite opposition from NSE, with whom it signed a pact in 2000.

Limaye said he’d called Loh Boon Chye, SGX’s CEO, in an effort to prevent the Feb. 5 start of the single-stock futures, which are not subject to the agreement between the exchanges.

“We were surprised by SGX going ahead,” Limaye said. “Our concerns were shared, that ‘please don’t do it or this will precipitate action.”’

SGX may seek to buy a stake in NSE’s IFSC exchange, either alongside a trading link or instead of one, according to the people familiar with its deliberations, who asked not to be named because talks are private. Limaye said there hadn’t been any discussions about a purchase.